One of the biggest risks associated with bitcoin is its steep price fluctuations that often act as a deterrent for beginner bitcoin-ers.
Newbie investors avoid putting their money on such a volatile digital currency that could crash in a blink of an eye, torpedoing all their investments in the process.
While the uncertainty of the bitcoin market dissuades the inexperienced trader, it lures the experienced buyer in for business. That is, experienced bitcoin-ers use the fluctuations in bitcoin prices to their advantage and make money off it.
They carefully examine the rise and fall pattern of bitcoin prices, pick up the factors that trigger a surge in value, and, based on those, make transactions to earn a profit.
Using bitcoin’s instability to one’s advantage comes with a 50-50 chance of success and failure as predictions are involved in the process. The issue with prophecies is that they are nothing but speculations; hence, they can easily turn out to be false.
Therefore, whenever such a variable is involved in any kind of business, an investor can either make unimaginable revenues or lose all their money.
That said, seasoned bitcoin-ers tend to trust their ability to predict bitcoin prices, which is why they indulge in a common practice of the bitcoin world, bitcoin-shorting.
Bitcoin shorting is a two-phase process. In the first part, a bitcoin-er borrows bitcoins from a brokerage and sells them in the market, expecting a drop in prices in the future.
When the bitcoin value crashes, the investor buys back the bitcoins they had sold earlier to resell them later when the prices spike. In simple words, bitcoin shorting works on the principle of buying low and selling high.
You buy bitcoins at a time when the value is worth peanuts. Then as the market rises, you sell the bitcoins and make a profit.
However, making a profit is not always a given in bitcoin shorting. Sometimes, if the bitcoin prices do not increase, one may have to bear heavy losses.
Nonetheless, shorting bitcoin is practiced quite commonly by a lot of venturesome bitcoin-ers. You can also try your hand at it with the help of our guide, but before we get to that, let’s take a look at predicting the price of bitcoin.
- 1 Can One Realistically Predict The Price Of Bitcoin Gold?
- 2 Bitcoin Shorting: Preparing and Executing for Bitcoin Gold Short
- 3 Ending Note
Can One Realistically Predict The Price Of Bitcoin Gold?
When it comes to making predictions regarding the bitcoin market, traders generally use two computing methods to reach a conclusion, though some self-proclaimed soothsayers trust their intuitions more than concrete numbers.
But since not everyone likes to operate on a wimp, let’s go over the two somewhat reliable predicting techniques bitcoin-ers use.
As the name suggests, this tactic focuses on studying the factors responsible for an instrument’s value to predict the future.
Traders who take the fundamental analysis route look at the price growth, scalability of the cryptocurrency, and the chosen network’s security over a specific period to make predictions. Some of these determinants are numerical values, while others are insightful judgments.
Traders who use technical analysis to predict the change in bitcoin prices do not look at the currency itself but its value and how it has changed over a specific span of time.
The factors studied for technical analysis include:
- The average price over a chosen time span
- The price at which a lot of investors start buying
- The price at which a lot of investors start selling
- The overall price trend
So, which predicting technique works better?
Well, nobody has a simple yes/no answer to this question as both practices have their positives and negatives. Fundamental analysis may not work well for bitcoin as it’s starkly volatile.
In contrast, the technical analysis might not be suitable for newer cryptocurrencies as there wouldn’t be enough past data to pick out patterns.
Therefore, we can’t tell you which hack you should use; it should be your decision. And if you are one of those lucky ones whose instincts don’t fail them, then maybe you should follow your gut to predict the future of bitcoin prices. Who knows, you might make a fortune based on your intuition.
Bitcoin Shorting: Preparing and Executing for Bitcoin Gold Short
Bitcoin gold is a relatively recent bitcoin fork that allows regular users to create bitcoin currency on standard computers without the high-functioning AISC hardware.
It is a hard fork of bitcoin that strives to decentralize the mining process. The original bitcoin mining requires energy-extensive hardware, allowing only a handful of miners to mine bitcoin. But with bitcoin gold, regular people can also mine bitcoin.
Many investors are now involved in bitcoin gold trading, which includes shorting the decentralized cryptocurrency. Here’s how you can carry out bitcoin shorting.
The word is that margin trading is the easiest way to short cryptocurrency. In margin trading, investors borrow the virtual currency (BTG or BTC) from a broker to sell it in the market only to repurchase it when the prices drop.
By doing so, traders gain ownership of the stock that they had borrowed earlier at a much lower market price to resell it when the value rallies, making a substantial profit in the process.
As the name gives away, prediction markets function on predictions by investors. In prediction markets, investors study the relevant variables to predict when the next bitcoin bubble will burst or when the prices will rally or crash.
If you wish to put your money in these markets, you will want to find a prediction that the cost of BTG will decline and go long on it, or find one saying that the price of BTG will rally and go short on it. The same goes for bitcoins; if you want to short on those, you’ll follow the same strategy.
Binary Options Trading
Binary options trading is carried out in two parts, referred to as ‘put’ and ‘call.’ This shorting technique involves a third party, much like all other tactics. In binary options trading, an investor buys the ‘put’ or ‘call’ options. Here’s how each of them works.
When you buy the put options, you obtain the right to sell a particular amount of bitcoin stocks at a certain price at a specific time. That means you’ll be able to sell your shares at the set price even if the market value drops. Simply put, you gain profit, even when bitcoin loses value.
Similarly, when you buy the call options, you acquire the right to purchase a particular amount of bitcoin stocks at a pre-fixed price but before a specified date.
That is, you must make your purchase before the set date, which is known as the expiration date. One has to follow the time constraint when transacting the call trading option.
Bitcoin Futures Markets
Though bitcoin is a currency, it’s treated as an asset. Therefore, like any other asset, bitcoin has a futures market.
Bitcoin futures market involves dealing in bitcoin futures-contracts stating that an investor will buy or sell a certain amount of BTG or BTC at a future date. Depending on what you predict regarding the prices, you agree to buy stocks or sell them at a later date.
If you believe that the price will rise, you sign an agreement stating that you will buy a specific amount of stock at a fixed price. This way, you get to purchase bitcoin at a value lower than the market price.
But if you have reason to believe that the stock prices will decline, you sell a futures contract stating that the buyer will buy shares from you at a set price. By doing so, you ensure that you will get a higher value for bitcoin stocks than the current market price.
Whichever order, either put or call, you choose to execute has to be based on what the future may or may not hold.
Short-Selling Bitcoin Assets
Short selling bitcoin assets is a direct shorting technique that an investor can do on their own. When short-selling bitcoin assets, traders sell off their stocks at a price they deem fair and wait for it to drop.
Once the value decreases, they can purchase their bitcoin assets again. However, if things don’t go as planned – that is, the rise or fall in the price doesn’t happen as imagined, one can lose their shares altogether or suffer a loss.
Since shorting is based on predictions, there is much uncertainty around the practice because predictions cannot instigate actions, or so we think.
Of course, when predicting things that are out of human control, such as the weather, there is hardly a way to turn things favorable.
However, when making prophecies about a system involving people, manipulation of events is possible because speculations can incite people to take particular measures, proving the prediction right in due time.
That is, let’s say the word in the bitcoin market is that the prices will increase soon, goading investors to purchase stocks. Resultantly the prices will go up. That said, it might not be the case every time, and you might lose money.
To better your chances of gaining a profit, involving a third party and executing an order (stating which shorting technique you wish to use) will be right for you, especially if you are a beginner.